After rallying to over $62 a barrel recently, WTI crude oil prices have continued to fall as the Abqaiq facility swiftly recovered production from the recent drone attacks. The easing of concerns surrounding the world’s largest oil supply outage has allowed traders to shift their sights back to the deteriorating economy, driving oil prices lower.
>“I think a Iran had the plan to be a real shark by taking out over 6 million barrels of Saudi Arabia’s oil. But the excellent reaction, the very professional reaction of the operators at the Abqaiq plant. They were able to put the facilities back upstream very quickly. They had an excellent emergency response. They sidetracked some of the burning facilities, used excess capacity, and I think they’re back in-line, producing over 11 million just now,” said Sadad Al-Husseini, founder and president of Husseini Energy Company.
Despite the seemingly miraculous recovery that the Abqaiq plant has made, Al-Husseini notes that, with respect to the overall oil supply, there is still much to be concerned about as long as Iran is in the picture.
“Well it is definitely very serious challenge. I think the big picture though we need to look at: why are we having these attacks? What’s the purpose? Obviously there’s nobody with this technology in the middle east region other than Iran, and so once you link it Iran and you have to ask what’s Iran trying to do. The obvious answer is to raise oil prices just such a high level that they will disrupt the global economy, and then hopefully in their eyes lift the sanctions. But in the long term that’s not going to work, because how can you trust a country with nuclear weapons and missiles if it’s going to go out there and sink ships and attack more facilities. So it is a serious concern,” Al-Husseini explained.
Investors are concerned as well, because oil prices initially spiked, creating worries that oil production could be interrupted in a more meaningful way.
“You do have two opposing factors at work. The economy is flat. It’s not going to pick up very much. So the demand for oil is not gonna be there. The geopolitics of the long term has got to be resolved, because if you’re going to have a country that attacks facilities of this scale, the next thing it might try to shut down the whole production of the Arabian golf. And that is a lot more oil than just Abqaiq can raise. So yes you have two opposing factors, and I think this really calls on the global community to get involved and try to put some sense into what’s happening in Tehran,” Al-Husseini added.
Sophisticated investors seeking to capture the downside of the oil market and willing to take on some risk can look into the following 3 ETFs, which have been performing well recently:
The ProShares UltraShort Bloomberg Crude Oil (SCO) closed up 2.33% Thursday. This ETF offers 2x daily short leverage to the broad based Dow Jones-UBS Crude Oil Sub-Index, making it a powerful tool for investors with a bearish short-term outlook for crude oil. Investors should note that SCO’s leverage resets on a daily basis, which results in compounding of returns when held for multiple periods. SCO can be a powerful tool for sophisticated investors, but should be avoided by those with a low risk tolerance or a buy-and-hold strategy.
The DB Crude Oil Double Short ETN (DTO) closed up 2.39% Thursday. This ETF offers 2x daily short leverage to the broad based Deutsche Bank Liquid Commodity Index-Oil, making it a powerful tool for investors with a bearish short-term outlook for crude oil futures and Treasury bills. Investors should note that DTO’s leverage resets on a daily basis, which results in compounding of returns when held for multiple periods. DTO can be a powerful tool for sophisticated investors, but should be avoided by those with a low risk tolerance or a buy-and-hold strategy.
The ProShares Daily 3x Inverse Crude ETN (WTID) closed up 2.79% Thursday. WTID is intended as a trading tool, not a buy-and-hold investment. The note provides -3x exposure to its index for a one-day period. The daily reset function means investors holding WTID for longer periods are exposed to the effects of compounding, and could see returns that vary greatly from -3x exposure. WTID’s Bloomberg index tracks oil futures contracts that are rolled every other month, striking a balance between spot-price sensitivity, turnover, and contango effects. As an ETN, WTID is backed by the credit of UBS, rather than futures and cash as in a commodity pool structure. Also, investors get a 1099 at tax time instead of a K-1.
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